A Court of Appeal judgement could have major consequences for the private rented industry, and open landlords up to legal action from tenants because they unwittingly broke the law on tenancy deposit protection.
They, or their agents, did not protect deposits at the time because they did not have to, and therefore did nothing wrong. The law on compulsory protection had not been brought in.
However, if the tenant remained in place and the tenancy became periodic, the law will have been broken by not protecting the deposit.
Landlords may also have broken the law as recently as 30 days ago by not re-protecting deposits when the initial fixed term tenancy became periodic.
This comes as a result of a ruling last Friday in Superstrike Ltd v Marino Rodrigues, where the tenant stayed on after tenancy deposit law became mandatory on April 6, 2007. The tenancy became periodic and, at that point, the landlord should have protected the deposit, it has been ruled.
Broadly, the Court of Appeal has now held that a statutory period tenancy is not a continuation of a fixed term tenancy but a new tenancy.
This means that deposits which have been paid by a tenant must be re-protected each time a fixed tenancy ends and within 30 days of the new statutory periodic tenancy being created.
The greater concern for landlords and agents is that many, including those with ongoing tenancies, will not have re-protected deposits, and not have given the tenants a new deposit protection certificate plus the prescribed information.
The case’s full implications are still being studied by lawyers – and by the tenancy deposit schemes whose rules differ and may now have to be rewritten.
For example, My Deposits has advised that there is no need for new protection when a tenancy becomes statutory periodic. Other schemes simply require that they are informed.
Central to the judgement is that tenants whose deposits were not re-protected when their fixed term tenancy rolled over into a statutory periodic tenancy, may now be able to claim against their landlord. Tenants could argue that any eviction was unlawful, and may also be able to claim back their original deposits plus a penalty.
The Statute of Limitation means that tenants of up to six years ago could make claims.
The Superstrike Ltd v Marino Rodrigues case was heard last month and the decision handed down on Friday.
While the full legal implications are still being scrutinised, what is clear is that the court has said that at the end of a fixed term tenancy, if a new fixed term tenancy is not put in place, when the tenancy becomes a statutory periodic tenancy this becomes a new tenancy.
Until now, it was widely assumed that a statutory periodic tenancy was simply a continuation of a fixed term tenancy, with no need to treat it as a new tenancy for the purposes of tenancy deposit protection.
However, the case makes clear that it is a new tenancy, and the tenant’s deposit must be protected again. This would suggest that the prescribed information must be given to the tenant again, within 30 days, although one lawyer – Tim Briggs of Legal Mentor – says there is no clarity on whether prescribed information must be re-served.
Briggs also says that he hopes that there will be an appeal to the Supreme Court where some “common sense” could be applied.
The Superstrike v Marino Rodrigues case concerned a tenancy that started before mandatory deposit protection took effect on April 6, 2007.
The Court of Appeal has ruled that because it became a statutory periodic tenancy after this date, the deposit needed to have been protected.
The tenancy itself, an Assured Shorthold, began on January 8, 2007, for a fixed term of one year less a day. The tenant paid a deposit of £606.66 – a sum equal to the monthly rent.
On the expiry of the fixed term, under the Housing Act 1988 he became entitled to a statutory periodic tenancy on the equivalent terms. No new tenancy agreement was entered into, and the rent remained the same. The deposit continued to be held by the landlord.
On June 22, 2011, the landlord served a Section 21 notice on the tenant. The landlord was granted possession, but this was then set aside on the grounds of non-compliance with the rules on tenancy deposit protection. The landlord then appealed.
The Court of Appeal ruled that a new tenancy had been created on January 8, 2008, under the Housing Act, and that the landlord had therefore received a deposit which then, by law, had to be protected. It was therefore held that the landlord was not entitled to have served a Section 21 notice and was not entitled to possession.
In a briefing, as a result of this case, Tim Briggs advises:
1) All tenancy deposits should be re-registered at the end of the fixed period of the tenancy, or the landlord is not in compliance with s.215 of the Housing Act 2004, and therefore no valid Section 21 Notice can be served.
2) If the deposit is registered at the beginning of the fixed term before 6 April 2007, but the periodic tenancy begins after 6 April 2007, the deposit needs to be re-registered.
3) If the deposit is not registered before 6 April 2007 and the periodic tenancy starts before that time, no need to register money taken for a deposit.
A full transcript of the Court of Appeal’s judgement is at the first link, while there is some interesting commentary at the second link.
http://www.bailii.org/ew/cases/EWCA/Civ/2013/669.html
http://tinyurl.com/lcex5ue
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Comments
It is very ridiculous the way this case has thrown the landlord -tenant agreements into a whirlpool with so many unanswered questions. I agree with a comment that if a statutory renewal is a new agreement then do landlords have the right to inspect and get the house painted etc and pay the balance to the tenant and then the tenant pays in full again?
When landlords are making it convenient for the tenant by statutory renewal this ruling has now opened new avenues for unscruplous management companies and ground landlords to ask for sublet fees in lieu, claiming lease property owners have to pay fees for new tenancy as per this ruling even if the tenant is the same and no paperwork has taken place! Talk about being forced to give handouts to the unscrupulous for doing nothing!
If the original AST stated that at the end of the fixed period it became a SPT many have defined that (wrongly it seems) as being part of the same tenancy (including deposit, inventory, terms of tenancy etc.). Since deposits cannot be protected after the 30 day limit what do landlords now do? There needs to be a grace period in which Landlords and Agents can react legally to the ruling by registering ALL deposits once and for all. Most agents have been giving new ASTs at the end of the initial fixed period as they could then recharge the tenant ridiculous fees for doing so. It is private landlords who will primarily suffer from this ruling.
At the ridiculous end of the interpretation of this ruling is that SPTs are technically a periodic agreement based on how often the rent is due and so deposits could need to be reregistered every week if paying weekly. At least this interpretation would allow all deposits to be registered since hardly any SPT would be older than 30 days!!
Been away on holiday sorry for delay but just a short post to say sorry I was right and everyone who criticised me as some sort of berk because I have said for ages that a periodic tenancy was a new tenancy.
S5 is as clear as the nose on your face on this point, maybe those who could not see it chose not to, because it is I realise somewhat inconvenient.
The debate now starting is so typical, arguments that PI does not need to be re-served. TDP is a two pronged exercise, always has been. On any NEW DEPOSIT as ruled in Rodrigues you MUST prootect (or re-protect) AND serve PI.
I also see comment about everyone asking TDP schemes for advice - why? They have no power or authority in the matter they are just there to comply with the statute themselves and deliver adjudications on disputed amounts.
Oh well, nice to be back. This does create majort headaches for Landlords especially and that is a pity. But the lAW really is quite clear on this and always has been.
Been thinking about this overnight, surely a tenancy can only be bought to an end if notice is served by one of the parties.
My understanding has always been that if either party want to end the tenancy at the end of the fixed term then they must serve notice. The agreement does not simply end and disappear but continues until someone does serve notice.
If no notice is served how can anyone suggest that the original tenancy has ended, and a new one created out of thin air.
This has been my understanding for the since my days at Poly and the basis on which I have run my business for the past twenty years. I have never been challenged on this before and really find it quite stunning that the Court appears to have so drastically moved the goalposts
Under 3 months start to finish was never a realistic time frame for the deposit legislation to be properly considered and thought through.
This case law is unlikely to be challenged and overturned because it plugs one of the big gaps in the original legislation.
It doesn't matter to the System what hoops agency now has to jump through it doesn't matter that a few will likely end up out of pocket or business because of this so long as Yvette Copper and CLG don't lose face that is really all that counts. There is less than 2 years to the next election and it wouldn’t do that the incompetence of someone who hopes to have a senior position in the next government is once more in the public gaze.
This is plainly ridiculous
At present I do not charge anyone a penny if Landlord and Tenant elect to go periodic, simply because I do not need to do anything. However if this decision is not taken to a higher court and overturned I clearly will need to.
The Court has done a major dis-service to all decent tenants with this outrageous judgement, and I hope it is appealed.
So if a statutory periodic tenancy is a new tenancy, presumably there also needs to be a new inventory and any dilapidations relating to the initial fixed tenancy should be agreed and apportioned within 15, or however many days, of the ending of the initial tenancy ?
in addition, even if landlords/agents have reprotected the deposit, other than say, rent arrears, a landlord will struggle to claim against the 'new' deposit because without a 'new' inventory they cannot prove the condition of the property at the start of the 'new' statutory periodic tenancy.
As the lunatics now seem to be running the entire asylum, presumably they also now need a tenancy agreement :-)
I don't think those whose tenant deposit funds from pre 2007 are intact have got quite as much to worry about as those that went into April 2007 sighing with relief that there was no pressure to identify and protect all the deposits in their charge and have not used the intervening years to put their affairs in proper order.
It probably is sensible to protect all deposits but that has been the case for 6 years and many were advised to do so. However if the some of those deposits are actually missing in action; deliberately used for other purposes or lost in the vagaries of a system change or suspense account many firms will have a real issue identifying and finding the deposits that now need protecting.
Isn't the legally expedient, simple (possibly only short term) answer, to put the deposits affected by this ruling into the DPS Custodial scheme immediately, if only to avoid potential rogue financial penalties for your landlord clients?
After all, it doesn't cost anything and would demonstrate a responsible approach.
This is ridiculous!
So they have changed the law retrospectively and most private landlords will now suffer the consequences!?
We might as well start writing the cheques to our tenants now because it would seem no matter what state they have left the property in they are getting their deposits back and under this new 'law' they will probably get a bit extra from us too!! I use MyDeposits which has always stated that if a tenancy agreement becomes periodic then there is no need to renew the deposit protection as it will continue under the original protection!
Have I now broken the law? This is beyond a joke, the government are making things impossible for both private landlords and letting agents and once again opening us up to unjustified legal action!
I can guarantee that if anything comes of this from my tenants I will be going after MyDeposits for providing wholly inaccurate information!
Has this not been misunderstood and blown out of proportion? My understanding is that any deposits taken for a tenancy that commenced prior to deposit legislation coming into place, on a fixed term AST that has become periodic, must be protected. Tenancies beyond this would already be subjected to the ruling and deposits protected. It makes no sense to refund and then repay a deposit if a fixed term becomes periodic, it's still protected in the relevant scheme (primarily DPS) and at absolutely no risk.
The insurance backed schemes might well be different, but for custodial it makes absolutely no sense.
Wow, it has only taken 6 years for the penny to drop. I raised this along with several other glaring omissions directly with DCLG in March 2007 when Yvette Cooper and co rushed deposit legislation into place without any consideration for the deposit £Millions that would remain un- protected.
Let’s hope that 6 years was enough time to ‘Salami technique’ errant deposit accounts into proper order and there won’t be too much embarrassment caused by this court of appeal decision.
I have had 6 years of being told this is of no consequence and does not matter; all of a sudden it seems it is and it does.